The U.S. government’s EB-5 program was designed to create jobs by luring capital from wealthy foreigners eager for a green card.

But one regional center initially run by state workers in South Dakota mysteriously shipped EB-5 money to companies in Russia and Hong Kong. Another $5 million vanished altogether. And a high-ranking government official in the middle of it all was found dead from an apparent suicide, according to U.S. government reports.

The controversy that engulfed the lone EB-5 regional center in South Dakota has become the poster child for the kinds of abuses that plague the popular immigration program.

EB-5 allows wealthy foreigners to buy a green card through an investment of at least $500,000, if the money helps to create or preserve 10 jobs in the United States. The program was designed as a stimulus for the economy, initially intended to help rural areas grappling with poverty, but it has exploded in the wake of the Great Recession.

As many as 10,000 visas are available each year to investors and their family members through the program — known as the easiest route to a U.S. green card. Most of the money is funneled through regional centers, operations approved by federal regulators as an authorized source to solicit foreign investors and spend EB-5 money.

A six-month Herald-Tribune investigation found that the EB-5 system is rife with fraud, as government officials failed to fully vet those who run EB-5 regional centers, particularly in Florida. The economic benefits of the program also have been challenged. And Homeland Security struggles with basic oversight, leaving some to call the program a threat to the safety of Americans.

Amid those problems, South Dakota still stands out. The U.S. Citizenship and Immigration Services issued a report in September detailing its intent to kick the South Dakota regional center out of the EB-5 program, and the scandal has been used as political ammunition in congressional races in the Midwest.

“Any time you have people who know how to use the system, which this program attracts, you’re going to get hosed,” said William Black, a professor of economics and law at the University of Missouri-Kansas City. “You’re self-selecting a group of folks who are really good and conning and gaming the system ... You’re seeing the exact pattern you would expect to see from this.”

In an effort to create new jobs and diversify its economy, South Dakota turned to EB-5 through a regional center opened by public employees working at a branch of state government.

The state’s efforts have brought more than 700 wealthy foreigners into the U.S., each who paid at least $500,000 to the regional center as part of the program’s mission to create or preserve jobs in South Dakota, USCIS records show.

But after millions of dollars went missing, the state’s once-promising initiative spun a web of lawsuits, corporate bankruptcies, an FBI investigation and a scandal that rocked through the governor’s office.

A USCIS official declined to comment on the South Dakota regional center, saying only that the agency “remains committed to preventing fraud and ensuring the integrity of the EB-5 program.”

But a series of documents obtained by the Herald-Tribune from state and federal agencies outline what went wrong.

Concerns about management

In April 2004, USCIS approved the business plan of the South Dakota regional center. The operation was run through a state agency, the South Dakota International Business Institute, which was based at a college and funded by taxpayers, government records show.

It is rare for a government to operate an EB-5 regional center. Most are run through private-sector businesses, including real estate developers and law firms, which use EB-5 as a supplemental source of capital. But the state government’s role was intended to add credibility and oversight.

South Dakota’s regional center was expanded in 2004 and again in 2006, with eventual projects ranging from a meat processing plant to a casino to pooling together investment funds for the Keystone XL Pipeline.

By 2009, state officials opted to outsource their EB-5 efforts.

Joop Bollen Photo provided by Rapid City Journal

South Dakota’s tourism and economic development department signed a contract to turn over regional center operations to SDRC Inc., a private company owned entirely by former state employee Joop Bollen, according to USCIS records.

As a public worker, Bollen lead the push by South Dakota to create the regional center and ran the program at the International Business Institute.

He resigned from his government post the same day that his company was given the EB-5 operating contract from the state, records show.

Many of the allegations that have surfaced against the regional center in South Dakota point to a lack of oversight and financial mismanagement while Bollen was at the helm.

Bollen did not return several phone calls from the Herald-Tribune seeking comment for this story.

For at least five years, the regional center provided inaccurate and incomplete information in its mandatory annual reports to USCIS, according to a 19-page investigation by the federal agency in late September.

Those alleged errors included the amount of EB-5 capital documented, the supposed jobs created and the new commercial enterprises associated with the regional center. Funds also were “impermissibly commingled” between different investor accounts and projects, the report states.

The federal agency concluded “the magnitude of these discrepancies casts doubts on the credibility of the regional center’s filings and management.”

Money moves

USCIS found that the South Dakota regional center had not accounted for at least $5 million collected through the EB-5 program.

The agency detailed another $3.18 million worth of expenses that the regional center paid using EB-5 collections that were not tied to job-creating operations, including housing and meal costs during a trip to Korea that were listed under “plant operating costs,” a $1.39 million loan repayment and hundreds of thousands of dollars used to settle prior legal disputes.

EB-5 funds also were diverted from the South Dakota regional center to a Russian railroad company, with no explainable ties to the center’s basic business functions, wire transfers show. Under the law, EB-5 money is supposed to come into the U.S., not leave it.

To escape the burden of owed debt, and a suffocating 29 percent interest rate, USCIS alleges that the regional center used more than $5.15 million of EB-5 funds in 2010 to buy a Hong Kong-based lender, again routing capital away from the U.S. The USCIS investigation characterized that purchase as “another example of EB-5 funds invested through the regional center being diverted away from job creation activities.”

The federal government also reported that the regional center moved investor funds from escrow without its clients’ permission, and regularly failed to vet EB-5 projects prior to 2008.

'Reckless' misrepresentations and omissions

The center’s questionable activity came to a boil when one of its top investment enterprises went bankrupt in 2013.

Just months later, South Dakota’s former secretary of tourism and economic development, who had been closely tied to the state’s EB-5 privatization, was reportedly found dead from what authorities ruled was a self-inflicted gunshot wound to the stomach.

The death ultimately prompted the FBI to investigate the regional center, but prosecutors did not pursue any formal criminal charges.

That same year, the governor’s office terminated its contract with the SDRC, government records show.

A spokeswoman for South Dakota Gov. Dennis Daugaard did not return several recent phone messages.

A spokeswoman from the state’s Office of Economic Development declined to comment on the record when reached by the Herald-Tribune.

Dozens of Chinese investors who invested in the bankrupt beef processing plant have since sued the state, Bollen and his company for $18.55 million over allegations that the regional center committed fraud when soliciting EB-5 investment for the questionable project.

The lawsuit, filed last month, claims that the regional center made “reckless” misrepresentations and omissions to lure them into the venture through promises of financial protections.

The litigation asserts that the beef business was instead plagued by years of delays and did not have adequate financing to create the jobs needed for the foreigners to successfully gain EB-5 visas, court records show.

In a separate claim, the state also has sued Bollen’s company, alleging the regional center failed to comply with the terms of its operating contract with South Dakota.

The myriad of problems stemming from South Dakota’s regional center prompted the USCIS to notify the state of its intent to remove it from the EB-5 program in September.

The state’s Office of Economic Development has asked the federal agency not to take such measures. Its 117-page response in late October said the state recognized the issues surrounding SDRC, already terminated the company’s contract and will strive to ensure the program operates in a more “responsible manner.”

“It is unfortunate the past actions of SDRC Inc., as administrator of the regional center under contract to the Governor's Office of Economic Development, have now placed the regional center's designation at risk with USCIS,” the state department's deputy commissioner, Aaron Scheibe, wrote in the response. The state “entrusted SDRC Inc. with administration of the regional center in the belief that its purported expertise concerning the EB-5 program would be of significant benefit to our state's projects and foreign investors. Subsequent events have shown that belief was misplaced.”

As of Dec. 15, South Dakota was not listed among the 37 regional centers terminated by USCIS.

All too common

Those who closely follow immigration policy say allegations like the ones in South Dakota are all too common, from Seattle to Sarasota. They point to recent attacks, like those in Paris and California, as a reason for more scrutiny.

“This program has been plagued by fraud and abuse,” U.S. Sen. Chuck Grassley, R-Iowa, said in a Congressional speech pleading for reforms before President Barack Obama in December. “But more importantly, it poses significant national security risks. Allegations suggesting the EB-5 program may be facilitating terrorist travel, economic espionage, money laundering and investment fraud are too serious to ignore.”

Supporters of EB-5 counter that the South Dakota regional center is an outlier in an otherwise successful program, and that issues like these have unjustly given the visa opportunity a bad name.

They stress the importance of EB-5 as an option for qualified foreigners to flee political and economic unrest in their native countries, safeguarding their wealth in the U.S.

“The types of programs participating in EB-5 need to be vetted somewhat better, in terms of job creation and financial viability,” said Edward Mermelstein, a Manhattan attorney, whose firm helps affluent foreigners invest in the U.S., including EB-5 related services. “But there’s a great amount of value in the program. It attracts high-net-worth individuals, who will not put a burden on the economy.”